Market Indicators - Investor Sentiment
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» Normxxx - Wealthiest Americans avoiding stocks
Wealthiest Americans avoiding stocks
Survey shows worries over terrorism are keeping wealthy U.S. investors out of the markets.
NEW YORK (Reuters) June 8, 2004: 6:45 PM EDT- Wealthy U.S. investors are optimistic about the outlook for the stock market, but worries about terrorism and other geopolitical factors have kept them from opening their wallets, according to a survey released on Tuesday,
The survey, sponsored by United States Trust Co., polled a sample considered among the wealthiest 1 percent of the population, based on adjusted gross income of more than $325,000 per year or a net worth greater than $5.9 million.
The respondents said they expect annualized stock market returns of 10 percent over the next three years and over the next 10 years. Their expectation over a one-year period was 8 percent.
But the optimism did not match the behavior of wealthy investors, said Paul Napoli, executive vice president and head of personal wealth management for U.S. Trust.
"They have taken a very defensive, very conservative posture," Napoli said in a telephone interview. Wealthy investors have about 40 percent of their portfolios in cash and bonds. About 33 percent is allocated to domestic equities.
"They need to vote with their dollars and make investments, as opposed to being frozen," Napoli said.
Of investors in the latest survey, taken in late April and early May, 89 percent expressed worry about terrorism hurting the economy, up from 86 percent in the prior survey in September, 2003.
A separate survey of wealthy investors by Chicago-based consultants Spectrem Group, also released on Tuesday, showed investors concerned about Iraq, high oil prices, possible interest rate increases and the U.S. presidential election.
Spectrem Group said its "affluent investor index" fell to a level of 12 in May from 16 in April, remaining in "mildly bullish territory."
But the index's measurement of the U.S. economic outlook for the next 12 months fell dramatically from 40 in April to 15 in May -- the same level seen shortly after the 9/11 attacks.
The Spectrem affluent investor index measures the investment outlook each month of 250 U.S. households with $500,000 or more in assets to invest.
Corporate governance opinions
The U.S. Trust survey also probed views on corporate governance. Nearly all the respondents, 96 percent, said audits by an accounting firm that does no consulting work for a company would be very effective or somewhat effective.
Separation of the roles of chairman and chief executive, with an independent chairman, was backed by 73 percent. In addition, 71 percent favored quarterly certification of the financial statement by an auditor, and 70 percent supported compensating executive officers in direct correlation with the performance of company stock.
Napoli said the preference for linking compensation and stock performance was a surprise, considering that many experts believe such a tie leads to a focus on short term strategies.
"Given our hope that businesses have a long term perspective, we are somewhat surprised by that finding," he said.
Questioned about their attitudes toward various financial advisers, only 19 percent rated stockbrokers or brokerage firms as very trustworthy. Insurance companies fared only a little better with 20 percentage rating them very trustworthy, and mutual fund companies were third from the bottom with 21 percent saying they were very trustworthy.
Certified public accountants or accounting firms garnered the highest rating for trustworthiness, 53 percent.
Private banks won the backing of 41 percent and investment management firms compensated by fees instead of commissions was third with 38 percent giving them a high rating.
Formally knows as the U.S. Trust Survey of Affluent Americans, the poll was the 23rd conducted since 1993.
The latest survey is based on a sample of 150 people from all regions of the U.S.
U.S. Trust, which manages $102 billion in assets, is a subsidiary of Charles Schwab Corp
The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.
-- posted by Normxxx
» Normxxx - UP AND DOWN WALL STREET
UP AND DOWN WALL STREET
By ALAN ABELSON, BARRON'S | MONDAY, JULY 26, 2004
ALTHOUGH THE MARKET HAS BEEN doggy for a heck of a long spell now, investors, especially of the professional persuasion, are by no means truly disheartened. And we're not talking about the incorrigible day traders or the poor misguided souls who stay glued to Tout TV, trolling for tips.
The mutual-fund managers are still heavy in stocks, light on cash. The brokerage-house strategists continue to recommend to anyone foolish enough to listen to them a hefty commitment to equities. And the investment-letter writers, a contingent tracked by Investors Intelligence, remain firmly biased to the upside: The latest sounding showed that around 52% of those surveyed were bullish, over twice the number who were bearish.
We're grateful to Alan Newman and his excellent Crosscurrents, published under the aegis of Longboat Global Advisors, for drawing our attention to a piece by Steve Hochberg in another newsletter, the Elliott Wave Forecast, that casts a relevant historical light on the Investors Intelligence survey. In particular, Hochberg contrasts the advisory sentiment a decade ago with that today.
Beginning in the first quarter of 1994, he writes, there were 46 straight weeks of more bears than bulls. That extended streak, he contends, provided "a long foundation of bearish psychology that acted as the springboard for the market's next six years of advance."
Compare that with the past couple of years: Bullish advisers have had the upper hand over their bearish counterparts for something like 92 weeks in a row. And one yardstick cited by Hochberg, the 26-week average of bulls minus bears, is higher than it was at any time in the great bubble markets of the 1990s.
We've been a faithful follower of the Investors Intelligence stuff forever (or since we became a professional spectator of Wall Street, whichever is longer). It's not infallible -- nothing is. But if you can't put your trust in investment advisers as a contrary indicator, then, for gosh sakes, what can you put your trust in?
The point of this brief review of sentiment then and now is not novel but very much worth repeating: The bear market of 2000-2002, despite the devastation it wrought, did not fully dissipate those giddy dreams of avarice that were so much part and parcel of the market mania of the 'Nineties. Which is why we've been so stubbornly insistent that the big move up from the lows, for all its power and pizazz, was a bear-market rally, not a new bull market.
Which means, of course, that one of these months, the bear market, red in tooth and claw, will return and complete its grisly business. You'll know the worst is over, incidentally, when your neighbor, a good Joe and straight arrow, asks you how to short stocks.
The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.
-- posted by Normxxx
» Normxxx - Re: Too Bullish?
In response to message posted by Kirk:Not necessarily-- either way! The best bet is that we are going to explode out of this range-- either to the upside or downside. Since we are in the summer doldrums, we can easily drift here for another few months. But remember, the September - November disaster zone looms ahead of the November - January strong rally period!
At present, I think we will see a generally weak August, but then a strong September and a (successful) retest of the lows in October. Still expect a strong rally in November - January. How's that for specificity?
The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.
-- posted by Normxxx
» bob90245 - Re: Re: Too Bullish?
In response to message posted by Normxxx:At present, I think we will see a generally weak August, but then a strong September and a (successful) retest of the lows in October. Still expect a strong rally in November - January.
Sounds like I'm going to have to stock up (or buy the stock) on Dramamine. <img src=http://www.suite101.com/images/emoteicon...>
-- posted by bob90245
» Normxxx - Re: Re: Re: Too Bullish?
In response to message posted by bob90245:Sounds like you are watching the markets too closely for a system investor. Remember, what goes down has to come up (I think). Look at this as a buying opportunity!
The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.
-- posted by Normxxx
» bob90245 - Re: Re: Re: Re: Too Bullish?
In response to message posted by Normxxx:Look at this as a buying opportunity!
I'm marking my calendar for November. <img src=http://www.suite101.com/images/emoteicon...>
As I mentioned somewhere before, no harm in having a small trading account (the 'explore' part of 'core and explore').
-- posted by bob90245
» Normxxx - 'Investing Ugly'
Outperform Your Friends by 'Investing Ugly'
By Dr. Steve Sjuggerud, President, Investment U | 4 August 2004
You don't want to hear it, but the smartest play right now is in SAFE assets...
Most folks believe the saying: "The more you risk, the more you can make..."
Not so fast...
There are ways to beat the markets by actually risking less...
For example, Robert Haugen, in the book The New Finance: The Case Against Efficient Markets, proves that buying less risky "value" stocks (defined as stocks with the lowest price-to-book ratios) actually beats buying risky "growth" stocks over the long run. Amazing!
The common wisdom is that you have to invest in risky things like tech stocks and other growth companies to really generate big returns.
Haugen proves it's the opposite... buying "boring businesses" at cheap values is where you make your money over the long run.
Investing ugly should beat investing sexy today and for the rest of the year. It's counterintuitive, but I think it's also the case right now.
Here's what I mean...
Many Investors Are Increasing Risk - For Lower Returns
You don't have to take a lot of risk to make a good return. Haugen proves the common belief is exactly the opposite of the truth!
Right now is another time where we can actually beat the overall markets by risking less... But that's hard for a lot of investors to hear.
Investors are disgusted by the returns they're making on their cash... generally less than 1% at the bank.
So they are stretching outside of their comfort zones. And they're putting themselves in danger... like buying junk bonds, just because they're paying 8% interest... not fully understanding that they're risking a serious blow to their principal if something goes wrong.
As recently as 2002, investors collected 14%-plus in interest on junk bonds... Now, that was a risk worth taking!
But today, you make less than 4% above Treasury bonds in junk bonds, with the threat of disaster always looming. Bond defaults could increase, and interest rates on these bonds could rise. You could actually lose money in these...
Just one example of how risky assets are expensive right now...
Boring Bonds... And Other Forgotten Loves
Meanwhile, boring government bonds are paying about 4.5% interest. And nobody wants 'em. Nobody anywhere...
The pros hate government bonds. According to a recent Merrill Lynch survey, only 6% of fund managers think global bond markets are undervalued. And the contrarian in me loves this. When everyone hates an asset, it's generally a good time to start acquiring it.
Individual investors - who have never particularly liked bonds in the first place - now have a smaller percentage of their assets in bonds than at any time in the last 17 years, with the exception of 2000 (data from the American Association of Individual Investors).
Note that bonds SOARED in value the last time individual investors had this small a percentage of their money in bonds (2000)... Bond yields started the year 2000 at 6.5% and finished the year at 5% - a great year for bond investors - and it was a year when individuals didn't own bonds. Just like now.
Quite often, the best time to buy an asset is when nobody wants it. And nobody wants bonds right now... so I'm buying!
A Rare Moment in Investing: Low Risk for Higher Returns
Everyone is attracted to risk right now - to his detriment.
Risky assets are expensive. And really boring assets, like Treasury bonds that nobody wants, may actually be cheap.
So my message today is, you may actually outperform your friends and neighbors for the rest of this year... by holding a safer portfolio than they do! It is a rare moment, where less risk will likely equal more return...
That's the way I see it.
Robert Haugen's book The New Finance: The Case Against Efficient Markets is a bit technical. But if you're really into what works in investing in stocks, it might be worth a look... Check it out by clicking on the title above.
The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.
The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.
-- posted by Normxxx
» bob90245 - Re: 'Investing Ugly'
In response to message posted by Normxxx:For example, Robert Haugen, in the book The New Finance: The Case Against Efficient Markets, proves that buying less risky "value" stocks (defined as stocks with the lowest price-to-book ratios) actually beats buying risky "growth" stocks over the long run. Amazing!
Hold on there! Larry Swedroe in his books argues just the opposite! Value stocks are in fact more risky than growth stocks. Generally speaking, companies with poor or uncertain earnings growth will generally become cheap on a P/B metric. While companies with great earnings prospects will generally trade at high P/B ratios. After all, if a company grows and beats earnings expectations quarter after quarter, investors will judge the stock as less risky.
So it takes more courage for the investor to invest in value stocks, who's prospects are lousy, rather than growth stocks, who's prospects are rosy. The ugly duckling stocks are more risky than the swans.
Therefore, it only makes sense that risk generally gets rewarded. That's why we see that value stocks as an asset class have higher historical returns than growth stocks. In the same fashion, riskier small-cap stocks have higher historical returns than large-cap stocks. And as I wrote somewhere previously, small-value stocks, though the most risky, have the highest historical returns of all.
-- posted by bob90245
» Normxxx - Re: Re: 'Investing Ugly'
In response to message posted by bob90245:Never having read Larry Swedroe, I don't know where he is coming from. But everything I've ever read shows that stocks with low P/Es and low P/BVs do best (especially small caps), and that is the generally recognized definition of a value company.
Sure there are stinkers, but overall they have been shown to do best! Generally speaking, to get a good handle on a stock, use the PEG ratio (P/E ratio divided by growth). A great value stock is defined as a stock with a PEG ratio of less than 1.
Your logic is impeccable, to a point, but the market rewards companies on the basis of fairly recent good earning (or not) and which have a great story. Many of these so-called growth stocks with huge market caps don't even have any earnings! Stocks without earnings have never been considered value stocks (except for 'special situations') Look at TASER. Look at GOOG. Also, if a company grows and beats earnings expectations quarter after quarter how can it not produce greater returns than a 10 - 15% earnings stock? Even if the P/E doesn't change, the E is rising rapidly.
Most value stocks have earnings in the 10 - 15% range, which is all any stock can really promise over any extended period of time, and are pretty stodgy companies. Ask Kirk if he thinks his stocks are low risk.
Just compare what happened to the high P/E and P/BV stocks over 2000 - 2002!
Small cap growth stocks do worst of any stock class. Small cap value does best.
I suggest you do an internet search on 'value stocks' and 'growth stocks.'
The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.
-- posted by Normxxx
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